Strategic Group Map

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Complementary components for successful strategic
management

• Strategic leadership - the role of individual
  managers strategic choice, and influences on
  those choices
• Industrial-organization (IO) economics - the role
  of the external environment
• Resource-based view of the firm - the role of
  organizational resources and capabilities

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Strategic Group Map (another tool to look at
the external environment, especially competition)
two-dimensional graphical depiction of
competitors in an industry showing. . . -
clusters of firms following similar strategies -
various competitive positions in the industry
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Steps in the construction of strategic group maps

• 1. Identify two important competitive
  characteristics that strategically differentiate
  firms in an industry from one another.
• 2. Plot the firms on the two-variable map.
• 3. Draw circles around the firms that are
  clustered together.
• 4. Indicate potential movement of firms with
  arrows.

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Pitfalls to avoid with strategic group maps

• breaking one firm into product lines and placing
  it in several positions
• mapping only one firm
• using poorly chosen axes (unimportant dimensions
  output measures rather than strategic intent
  dimensions correlated axes)
• keeping your thinking constrained to quantitative
  descriptors only

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Value of strategic group maps

• identification of major and indirect rivals
• picturing the competitive playing field
• identification of open niches
• identification of competitor moves
• improved understanding of differential effects of
  external trends
• identification of better/worse positions

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Limitations of strategic group maps

• more useful in fragmented industries
• often difficult to meaningfully use in
  consolidated industries
• only two-dimensional
• a macro view of competitive rivalry
• role of mobility barriers (which restrict
  movement between groups) is unclear

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Financial Ratio Analysis (another tools for
internal analysis)

• Examine relevant growth rates
• Examine various measures of profitability
• Horizontal analysis - identify proportionate
  contributors to revenues, profits, costs
• Financial ratios - activity, liquidity, leverage,
  stockholder-related
• Examine trends over time
• Compare to industry averages

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Basic assumptions of the resource-based view of
the firm

• firms bundles of productive resources and
  capabilities
• these bundles are heterogeneous, and generally
  immobile
• the sources of competitive advantage exist at a
  very micro-level in the organization

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Using the resource-based view for internal
analysis

• value chain - (see additional handout, and text
  pg. 118) a tool for more precise identification
  of strengths and weaknesses
• vigilance for attributes that lead to lower costs
  or higher perceived value
• keen attention to resources and capabilities that
  are valuable, rare, difficult to imitate, and
  organizationally exploitable by the firm

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Mintzberg (R4.5)Generic Strategies

• 1. Locating the core business
• 2. Distinguishing the core business
• 3. Elaborating the core business
• 4. Extending the core business
• 5. Re-conceiving the core business

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1. Locating the core business

• a - upstream strategies
• b - midstream strategies
• c - downstream strategies
• raw
• material - manufacturing - distribution - retail
  - service
• a b c

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2. Distinguishing the core business

• Mintzbergs differentiation strategies
• - image
• - support
• - quality
• - design
• - price
• -undifferentiated
• - scope

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2. Distinguishing the core business

• Porters generic strategies
• business-level (division-level) strategies
• - cost leadership
• - differentiation
• - focus or niche
• - integrated low-cost/differentiation

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Competitive advantage rests on creating value for
consumers!
Profit depends on - price - dependent on
perceived value or perceived
differentiation cost - dependent on
efficiency Sustained competitive advantage
above-average profits over a number of years.
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Porters generic business-level strategies are
based on two decisions

• 1. What basic competitive advantage to seek?
• low costs? Or differentiation?
• 2. How broad a target market will be targeted?
• a broad swath of the entire market?
• or only selected narrow market segments?

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2 main business-level strategies

• Cost leadership
• broad, mass market (unsegmented)
• standardized products, few features
• efficiency-related skill

• Differentiation
• broad market, multiple segments
• customized products, more features
• marketing skill

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Cost leadership strategy

• Intent is to reduce the firms economic costs
  below all of its competitors, while maintaining
  product desirability.
• Successful firms practice sustained (relentless?)
  attention to cost reduction throughout their
  value chain activities.

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Steps to develop cost leadership strategy

• examine value chain for cost saving areas
• pay attention to cost drivers
• no stone is left unturned!
• no sacred cows!
• look both inside and outside the firm for cost
  savings
• reconfigure the value chain as needed

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Implementation of cost leadership - structure

• few layers of management
• simple reporting relationships
• small corporate staff
• hands on leadership
• focus on narrow range of business functions

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Implementation of cost leadership - control
systems

• tight cost control systems
• quantitative cost goals
• close supervision of labor, supplies, inventory,
  waste, other costs
• embedded cost-leadership philosophy

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Implementation ofcost leadership - compensation

• rewards for cost reduction
• incentives for all employees to be involved
• fewer perks and amenities

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Differentiation strategy

• Intent is to increase perceived value of products
  or services relative to competitors while
  maintaining acceptable costs.
• Successful firms respond to environmental
  opportunities and attempt to create a structure
  of monopolistic competition.

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Steps to develop differentiation strategy

• identify the target market, the real buyer and
  other influential persons
• determine important buyer purchasing criteria
  throughout the value chain understand buyers
  purchase process
• develop relevant sources of uniqueness - as long
  as reasonable in terms of cost
• lower costs elsewhere if possible

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Implementation of differentiation strategy -
structure

• multi-disciplinary product development teams
• exploration of new structures to exploit new
  opportunities
• isolated pockets of intense creative efforts
• elaborated marketing functions

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Implementation of differentiation strategy -
control

• broad decision-making guidelines
• freedom/autonomy within the guidelines
• organizational slack
• policy of experimentation

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Implementation of differentiation strategy -
compensation

• rewards for risk-taking
• rewards for creative flair
• multi-dimensional performance measures
• attractive perks and amenities

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Focus (niche) strategy

• Intent is to concentrate on one or two attractive
  market segments.
• A firm can choose either low-cost or
  differentiation approaches implementation is to
  be consistent with the approach taken.

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Integrated low-cost differentiation strategy

• simultaneously being different and better, with
  the lowest costs
• extremely difficult to successfully implement
• result is often getting stuck-in-the-middle,
  lacking either low cost or differentiation
  advantage

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Advice for business-level strategy

• understand your resources and capabilities
• be true to your distinctive competence - base
  strategies on strengths
• be as good as possible at activities not primary
  to your strategy - without cutting into your
  competitive advantages
• remember - strategies must be implemented through
  value chain activities

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3. Elaborating the core business

• market penetration
• market development
• product development
• diversification

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4. Extending the core business

• diversification
• - related unrelated
• vertical integration
• - forward backward
• (These are corporate-level strategies.)

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5. Reconceiving the core business

• business redefinition
• business recombination
• core relocation

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Mintzbergs (R4.6)Guide to Strategic
Positioning

• Types of misfit (pg. 135) - beware!
• capacity misfit
• competence misfit
• design misfit
• sunk misfit
• myopic misfit
• location misfit

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• Misfits and/or evolving forces in the
  environment create strategic windows that
  invite contestability
• with a variety of strategies (pp. 137-138)
• frontal attack
• indirect or flanking attack
• battering
• guerrilla attacks
• market signaling
• collaborative strategies

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• THE TARGET (markets)
• mass market
• fragmented market
• segmented market
• thin market

• THE FIT (strategic positions)
• commodity strategy
• niche strategy
• segmentation strategy
• customization strategy

• (Pp. 131-134)
• Fit can be natural, forced, or vulnerable.
• Fit can be improved via reinforcing mechanisms
  (resource/skill enchancements)
• Fit can be protected via isolating mechanisms
  (entry/mobility barriers).